For purposes of this post, I will discuss the managerial and supervisory exemption found in Regulation 285/01 under the ESA.These individuals are exempt from overtime pay requirements as well as a number of hours of work requirements.A handy chart is available on the Ministry of Labour website.

As the Special Advisors noted:

The issue here is not whether there ought to be an exemption from the hours of work, overtime and related provisions of the Act, but how the exemption should be defined. In other words, the issue is which employees should not have the protection of the Act because they are genuinely aligned with management to such an extent that they do not need protection or warrant protection, as they are expected as part of their higher remuneration to work longer and harder, as part of the arrangement wherein management is paid more generously.

This exemption has resulted in significant class action litigation where employees argued that the employer had misclassified them as “managerial and supervisory” and, in doing so, illegally contracting out of the ESA including, most notably, the overtime provisions.

The exemption is misunderstood and difficult to apply with precision.The Special Advisors put it this way in their Report:

The concern with the present definition is threefold:

It may be including many people as supervisors and managers who are not really functioning in that role, or who even if they are, are paid too little to warrant the exclusion;

It is unclear who is and who is not managerial as the tests are not well described or understood;

The current test treats some real managers and supervisors as not being exempt, only because they perform some of the same work of the people they supervise on a regular basis.

The exemption is worded very precisely as follows:

a person whose work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis.

was the employee’s work managerial or supervisory in character; and if so,

did he or she perform non-supervisory or non-managerial tasks on an irregular or exceptional basis?

The Special Advisors were critical of this test, as were a number of employer organizations.The Special Advisors said:

The test equates the performance, on a regular or non-exceptional basis, of work of those being supervised as not managerial regardless of the duties and responsibilities or pay level. However, in our view the test does not address the real policy issue the statute should be concerned with which is who should be included and who should be exempt.

In our view, concentrating on whether the persons perform the duties of the people they supervise and how often is not an appropriate indicator as to whether they should be protected under the Act. If they genuinely perform managerial functions and if they are paid appropriately, the law should have no concern as to how much work they are doing of those they are supervising. Accordingly, we recommend that the existing test be eliminated.

The Special Advisors recommended that Ontario adopt the U.S. approach under the Fair Labor Standards Act (see footnote 244 on page 169 of the Final Report which describes the federal U.S. test in detail).They recommend the following:

We recommend that the current test for managers be changed to a “salaries plus duties” test where, in order to be exempt from hours of work and overtime protection, a manager would have to perform defined duties, which would generally follow the U.S. tests for executive and administrative employees (these are, in broad strokes, compatible with the Ontario Labour Relations Board criteria). We recommend that the salary figure be 150% of the general minimum wage (currently $11.40), converted to a weekly salary of $750 per week, on the basis of a 44-hour work week, which is the threshold for the payment of overtime.

To fall within the exemption, an individual must not only exercise genuine management functions, but also receive a salary test that “is sufficiently high so that such persons are compensated for the statutory rights they are giving up.”

Indeed the current test is unclear and imprecise and potentially costly for employers and employees alike. The test needs to be clarified whether in the manner proposed by the Special Advisors or otherwise. If this occurs, it will be likely that employers reassess who in their organization is eligible for and exempt from overtime and the hours of work provisions. This could have significant implications on employers in this province not just in terms of the cost of overtime but in the manner in which work is performed.